Foreign Savings Research Articles

MACROECONOMIA DO BRASIL PÓS-1994

The Brazilian macroeconomic model is characterized by financial opening, a growth strategy based on foreign savings, low (overvalued) exchange rate, current account deficits, high foreign debt, high basic (Selic) interest rate, low but inertial inflation, soft fiscal policy negative public savings, high public debt, depressed expected rates of profit, stagnant salary rate, depressed domestic savings, depressed investments, high unemployment, per capita GDP quasi-stagnant. The Brazilian economy achieved price but not macroeconomic stabilization in 1994 as long as intertemporal equilibrium was not achieved in fiscal and external accounts areas. Growth will only be resumed if monetary authorities acknowledge the interest rate and exchange rate trap in which the Brazilian economy is immersed, and decide to invert the perverse macroeconomic equation of high basic interest rate and low exchange rate. Yet, the international and domestic orthodoxy that runs macroeconomic policy in Brazil keeps using conventional macroeconomics to understand problems which are not conventional, and, so, it is unable to achieve the required macroeconomic stabilization.

Private, Public and Foreign Savings

Saving, Investment, Financial Integration and FDI in Central Europe: Evidence on domestic savings and investments in industrialised countries indicates that capital markets are not perfectly integrated. On the contrary, various measures of financial integration prove that capital has become highly mobile. This paper presents theoretical explanations for this fact, data on the European Union Northern and states and estimations of the saving-investment relation for some emerging Central and Eastern European countries (CEECs). It was found that domestic investments in Poland, Hungary, Estonia, and the Czech Republic have been partly financed by FDI inflows in recent years. A similar situation was taking place in the so-called Europe in the 1980s. There has been a geographical shift in FDI inflows from Southern EU countries to more developed CEECs in the mid-1990s. It seems possible that fast growing FDI inflows in Poland and in Estonia could hamper the future growth of saving rate. The Interactions between Private Savings and Governments Budget Deficits: This paper attempts to assess the influence of government budget deficit on private saving rate, with special emphasis on Poland and other transition economies. The theoretical predictions concerning the direct impact of budget actions on private savings are given by the Ricardian-Barro Equivalence Theorem and the Neo-classical view. Existing empirical research on the correctness of the Ricardian versus the Classical view is largely inconclusive. A simple empirical analysis for Poland indicates, that in years 1991-1997 there was no strong Ricardian-type relationship between the government net lending and private savings. There is however a possibility of the existence of a weak form of Ricardian Equivalence in Poland, when one assumes, that the social security is treated differently than the rest of government net lending, and therefore social security balance is excluded form government budget balance. However, much longer time series is needed to draw any strong conclusions. Influence of Interest Rates on Credits and Deposits of Non-financial Sector in Poland: The main purpose of this paper is to analyse factors that influence the magnitude of credits and deposits held by households and enterprises. The analysis is performed for the period 1994-1998 using quarterly time-series data. The magnitude of credits and deposits was initially supposed to depend on GDP, real interest rate, real exchange rate, and M2/H ratio (explaining the development of banking sector in Poland). Authors conclude that the growth rate of zloty denominated deposits held both by households and by enterprises is positively correlated with real interest rate, and that this relation is stronger in the case of households. It can be said that the development of banking sector in Poland influences the growth of credits and deposits held by households, but it does not affect the behaviour of firms. It seems that GDP influences the growth rate of deposits, while it has no effect on the demand for credits in Poland. A change in the real interest rate matters only for corporate actions.

Structural Shifts in the Current Account of India's Balance of Payments

This paper explores structural shifts in the current account of India's balance of payments alongside the micro foundations from 1950 to 2008. Key structural features that emerge are the disappearance of twin deficits and the reversal of a unidirectional causality in the post-reform period from foreign savings to domestic investment. Current account deficit, although sustainable, is marked by a significant structural component after adjusting for remittances. Merchandise trade is characterised by higher quantity growth rather than price growth, a transition from low-technology to medium-technology exports, a shift in trade towards developing countries. Service exports exhibit reduced volatility and diversification from traditional to business and technology-related services. This period also witnessed a spatial shift in the sources of workers’ remittances from oil-producing to developed countries, with the overall behaviour of remittances influenced by the income effect in the host country, exchange rate movement and interest rate arbitrage.

Private Savings Behaviour in Nepal: Longterm Determinants and Short-run Dynamics

With a view to explain the long-run and cyclical behaviour of private savings in Nepal during the period 1974-2005, the study employs an error-correctionframework. The study estimated 0.309 as marginal propensity to save with the corresponding value of 0.365 in the long-run. The estimation results reveal thatreal income, real government savings, real foreign savings, real interest rates, and labour market constraints play important roles in determining private savings in the short and long-run. The findings of the study suggest that there is a need to focus on development policy which increases productive base of the economy in order to increase income growth and reduce unemployment. It is also important to note that the real interest rates have a positive influence on the private savings and can be taken as an important policy variable in Nepal.

Savings behaviour in South Asia

Savings behaviour is important because of the close relation between savings and growth. Thus this paper presents individual country analysis of the savings behaviour in five main South Asian countries, namely India, Pakistan, Bangladesh, Sri Lanka and Nepal, using modern time series procedures. Our results show savings in South Asia are mainly determined by income, access to banking institutions, foreign savings rate and dependency rate. The impact of the real interest rate on savings is minor and inconclusive.

Financial Liberalisation and Investment in Tanzania: An Empirical Investigation

This study attempts to empirically examine the impact of financial liberalisation on investment in Tanzania using the cointegration based error-correction model. The study seeks to answer one critical question: Is the mechanism through which financial liberalisation affects economic growth in Tanzania based upon its impact on the volume or on the efficiency of investment? The empirical results of this study reveal that whilst financial liberalisation positively influences the volume of investment in Tanzania, its impact on the efficiency of investment is minimal. The study, therefore, concludes that the current financial liberalisation taking place in Tanzania may only impact on economic growth through its influence on the volume rather than the efficiency of investment. Other empirical results reveal that: 1) Public investment complements rather than substitutes private investment in Tanzania; 2) The growth rate of real GDP has a positive and significant effect on private investment in Tanzania; and 3) Foreign savings have a negative effect on the efficiency of investment in Tanzania.

Interest Rate Sensitivity of Savings: The Ghanaian Experience

The study sets out to examine the sensitivity of savings to interest rate in Ghana during the period 1970 to 2006. In line with this objective, a theoretical model of savings function was specified with real interest rate as the main independent variable. Other independent variables included real income, inflation rate and real foreign savings. The specified error-correction model was estimated by the Ordinary Least Squares (OLS) method based on Engel and Granger two-step estimation approach. Both the long-run cointegrated results and the short-run results have revealed that the interest rate is a significant determinant of savings in Ghana. The policy implications are that, the Ghanaian financial policy authorities should try hard to maintain realistic interest rates that can attract the idle funds into the banking system to be used by prospective investors. Similarly, since the level of real interest rate and hence the rate of return on funds is affected by the inflation rate, the Bank of Ghana must continue to make further efforts to reduce the level of inflation in the country.

Economia política da desgovernança global

A desgovernança econômica global, mais do que a governança, é uma das características mais marcantes, hoje, da economia mundial. Dois fatos confirmam esta afirmativa: as recorrentes crises do balanço de pagamentos em países em desenvolvimento, e o enorme déficit em conta corrente dos Estados Unidos. As crises em mercados emergentes são, essencialmente, o resultado de uma estratégia que o Norte propôs para o Sul: o crescimento com poupança externa. Dado o fato de que os fluxos de capital externo valorizam a taxa de câmbio, e que os países não aproveitaram as oportunidades de investimento nos anos 1990, tal estratégia não gerou aumento da acumulação de capital e crescimento, mas um grande déficit em conta corrente e crises (financeiras) de balanço de pagamentos. Por outro lado, o déficit em conta corrente dos Estados Unidos é um problema sério. Os Estados Unidos já são um país devedor, mas os ajustes continuam a ser adiados. Assim, a probabilidade de um soft landing é pequena. As duas fontes geradoras de instabilidade estão relacionadas com os déficits de conta corrente e a moeda sobrevalorizada. A política por trás disso tudo tem um nome: populismo cambial, uma das duas formas de populismo econômico (a outra é o populismo fiscal). Isto não é surpreendente em países em desenvolvimento, mas pode ser em um país desenvolvido como os Estados Unidos. Mesmo assim, quando considerados o retrocesso político e social que a sociedade americana vem experimentando desde o fim da Segunda Guerra Mundial, este fato deixa de ser surpreendente.

Global Savings–Investment Imbalances: What Role for East Asia?

This paper examines the current path of global imbalances and the role of East Asia in addressing these issues. The roots of the problem are the exploding budget deficit and soaring current account deficit of the United States. The twin deficits are being financed by foreign savings including the placement of the massive foreign exchange reserves of East Asia in U.S. dollar–denominated debt, such as U.S. Treasury notes. Solving the imbalances will require corrections of internal and external imbalances by both the United States and its trading partners. How East Asia deploys its reserves could set off a tsunami of sales of dollar-based assets that could disrupt the U.S. and global economy. Sharp exchange rate adjustments (particularly a large fall in the U.S. dollar), and a protectionist backlash against the U.S. current account deficit, are in no one's interest as they could trigger global shocks.

Tectonic Shifts in the Structures of International Inequality?

The article analyses further develops the neo-dependency approach already presented by the same author and looks at recent time series trends in the structure of international capital penetration, international savings, and the dynamics of unequal transfer and their effects on social well-being today. It emerges that the European Center is going to become the main loser in the structural changes that affect the position of Europe in the 21st Century. The world system approach, pioneered today, above all by Giovanni Arrighi and the late Andre Gunder Frank, teaches us that the centers of gravity in the world economy are dramatically shifting towards the Asia- Pacific region, and that the days of Eurocentrism are outnumbered. Foreign savings become an important indicator of the center-periphery structure of the world system and its changing nature (with its ongoing shifts favoring mainly the Asia - Pacific region) as well. Savings rate in Europe almost everywhere decline. It is simply unthinkable that ongoing changes in the structure of unequal transfer (ERDI, with ERDI being the exchange rate deviation index, developed by Stanford Professor Pan Yotopoulos) will not affect the entire system. The center received inputs to the tune of around 8 % of its current GDP through to the middle of the 1990s, however at the end of the 1990s we seem to have arrived at a historical junction where this very structure seems to evaporate and be substituted by another one.By and large, it is shown that the member countries of the old EU-15 are on the losing side in the shifts of unequal transfer (ERDI) from 1998 to 2002.. No old European country improved its position, on the contrary, old Europe becomes a region that is itself a victim of unequal transfer. It also emerges that ceteris paribus the Muslim world indeed became the main loser of these tectonic shifts. It is entirely conceivable that these pressures - as Gernot Kohler has shown - also explain a good part of the negative trends on the labor markets in the Muslim countries and in Europe. It is clear that rising rates of unequal transfer are causing rising rates of unemployment. Our approximate, admittedly crude measure is tto correlate DYN ERDI (in the short term, assuming that this reflects a longer-run tendency as well) with the changes in unemployment over the last 2 decades since 1980, observable from the ILO Laborsta data set. A non-linear function explains 16 % of the rise in unemployment (time series correlations, ILO Laborsta data series). So, while the Muslim world can optimistically evaluate recent trends in world savings, recent changes in unequal exchange rather differentiate between those Muslim countries with a favorable world economic prospect and those that further remain in a peripheral status. Inter alia, prospects for the following Muslim nations deteriorate due to rising unequal exchange, and they will be faced, according to this analysis, with a rising unemployment: Algeria; Bangladesh; Egypt; Eritrea; Iran, Islamic Rep. of; Kazakhstan; Malaysia; Mali; Mauritania; Morocco; Niger; Pakistan; Senegal; Syrian Arab Republic; Tajikistan; Tunisia; Turkey; Uzbekistan. The escalating violence in former Soviet Central Asia, most notably, Uzbekistan, is a dramatic example for the relevance of this approach. Thus it is shown in this article that transnational integration is and remains to be a contradictory process that does not lead 1:1 to a greater amount of social cohesion and sustainable development in the host countries of transnational penetration.

What happened to savings during the financial crisis—a dynamic panel analysis of Asian-5 countries

This article examines the determinants of saving rates in five Asian (Asian-5; Malaysia, Singapore, Thailand South Korea and the Philippines) countries over the 1970–2000 period. The focus is on the relationship between savings rates and foreign capital inflows before and in the financial crises. Major findings from the dynamic panel regressions are: (i) foreign savings depresses domestic savings ratio in the short as well as in the long run and the offset appears to be larger in the crisis period; (ii) real interest has a small negative effect on savings in the short and long run; (iii) the demographic factor explains a large portion of the long run trends but not the short-term fluctuations in savings rates; and (iv) high savings ratios in the countries studied is linked to the export sector.

Por que a poupança externa não promove crescimento

Why foreign saving fail to cause growth. The present paper is a formalization of the critique of the growth with foreign savings strategy. Although medium income countries are capital poor, current account deficits (foreign savings), financed either by loans or by foreign direct investments, will not usually increase the rate of capital accumulation or will have little impact on it in so far as current account deficits will be associated with appreciated exchange rates, artificially increased real wages and salaries and high consumption levels. In consequence, the rate of substitution of foreign savings for domestic savings will be relatively high, and the country will get indebted to consume, not to invest and grow. Only when there are large investment opportunities, stimulated by a sizeable difference between the expected profit rate and the long term interest rate, the marginal propensity to consume will get down enough so that the additional income originated from foreign capital flows will be used for investment rather than for consumption. In this special case, the rate of substitution of foreign for domestic savings tend to be small, and foreign savings will contribute positively to growth. Key-words: foreign savings, economic growth. JEL classification: E1, E2, F0, F3, O11.

Comment on “China's Recent Economic Performance and Future Prospects”

Comment on “China's Recent Economic Performance and Future Prospects”

Money and capital investment in South Africa: A dynamic specification model

This paper investigates the link between money and physical capital in the finance motive for economic development, as postulated by McKinnon 's [McKinnon, R. I. (1973). Money and capital in economics development. The Brookings Institution, Washington, DC] hypothesis—using South African data. Contrary to the results obtained from some previous studies, the empirical results of this study provide strong support for McKinnon's complementarity hypothesis in South Africa. The empirical results also reveal that (i) foreign savings complement rather than substitute domestic savings in South Africa, (ii) the growth rate of real income has little or no effect on the savings rate in South Africa, and (iii) the existence of a high dependency ratio in the country exerts a negative influence on the savings rate.

Transition, savings and growth in Vietnam: a three-gap analysis

This article assesses the significance of domestic and foreign savings for Vietnam's economic growth. Using annual data for the period between 1986 and 2000 a three-gap model is formulated and estimated. The model illustrates quite vividly the centrality of the foreign exchange constraint for Vietnam's economic growth. The domestic private savings constraint is also shown to be more binding than the public savings constraint. The estimates of the foreign exchange requirements under various growth path scenarios over the period 2001–05 suggest that the increase in investment required to boost the growth rate of output results in much higher levels of external debt than that estimated by the World Bank and other donors. Copyright © 2005 John Wiley & Sons, Ltd.

Sources for Financing Domestic Capital - Is Foreign Saving a Viable Option for Developing Countries?

This paper proposes a new method for measuring the degree to which the domestic capital stock is self-financed. The main idea is to use the national accounts to construct a self-financing ratio, indicating what would have been the autarky stock of tangible capital supported by actual past domestic saving, relative to the actual stock of capital. We use the constructed measure of self-financing to evaluate the impact of the growing global financial integration on the sources of financing domestic capital stocks in developing countries. On average, 90% of the stock of capital in developing countries is self financed, and this fraction was surprisingly stable throughout the 1990s. The greater integration of financial markets has not changed the dispersion of self-financing rates, and the correlation between changes in de-facto financial integration and changes in self-financing ratios is statistically insignificant. There is no evidence of any bonus associated with increasing the financing share of foreign savings. In fact, the evidence suggests the opposite: throughout the 1990s, countries with higher selffinancing ratios grew significantly faster than countries with low self-financing ratios. This result persists even after controlling growth for the quality of institutions. We also find that higher volatility of the self-financing ratios is associated with lower growth rates, and that better institutions are associated with lower volatility of the self-financing ratios. These findings are consistent with the notion that financial integration may have facilitated diversification of assets and liabilities, but failed to offer new net sources of financing capital in developing countries.

O segundo consenso de Washington e a quase-estagnação da economia brasileira

RESUMO Enquanto nos aspectos éticos e sociais o governo Cardoso (1995-2002) foi bem-sucedido, seus resultados econômicos foram frustrantes. Nesses oito anos, a taxa de investimento não aumentou e a renda per capita diminuiu, enquanto as dívidas pública e estrangeira aumentaram substancialmente. Esse fraco desempenho econômico pode ser explicado por três causas encadeadas: um erro na definição da agenda, a adoção do Segundo Consenso de Washington e a alienação das elites. A decisão de definir a inflação alta como o principal problema a ser enfrentado, em vez de alcançar o equilíbrio em contas estrangeiras, representou um grande erro macroeconômico, o que pode ser explicado pelo Segundo Consenso de Washington. Esse consenso propôs na década de 1990 que os países altamente endividados deveriam crescer contando com a poupança externa, embora essa não seja a experiência entre os países da OCDE. O resultado foi avaliar o real, o aumento artificial dos salários e do consumo, de modo que, em vez de crescimento, aumentamos o endividamento. Por que essa estratégia foi adotada? Os interesses dos países ricos não são difíceis de adivinhar. Por parte do Brasil, a única explicação é a alienação das elites brasileiras em relação ao interesse nacional do país. Como resultado final, o governo Cardoso termina com outra crise na balança de pagamentos.

Crescimento Econômico com Poupança Externa?

RESUMO Os países altamente endividados, particularmente os latino-americanos, apresentaram resultados econômicos negativos na década de 1990, que são a consequência da “estratégia de crescimento com poupança externa”, ou o Segundo Consenso de Washington. Juntamente com a liberalização dos fluxos financeiros internacionais, tal estratégia, que não fez parte do primeiro consenso, levou os países, na onda de um novo ciclo mundial de fluxos de capital, a déficits elevados em conta corrente e aumento da dívida externa, ignorando a restrição da solidez e o limiar da dívida. Em termos práticos, envolvia moedas supervalorizadas (baixas taxas de câmbio) e altas taxas de juros; em termos políticos, a tentativa de controlar o déficit orçamentário enquanto o déficit em conta corrente foi ignorado. A consequência paradoxal foi a adoção, pelos países altamente endividados, do “populismo cambial”, uma forma menos óbvia, mas mais perigosa, de populismo econômico.

Taxing capital flows: an empirical comparative analysis

Recent studies have analysed the impact of capital account opening on income growth, implicitly assuming that the various forms of foreign savings have similar effects. In fact, theoretical considerations suggest that the individual components of private capital inflows have different effects on growth. This paper analyses the link between income growth and private capital inflows. It presents system GMM estimates with annual observations from 1985 to 1996 for 72 countries. When full-sample results are checked for country and period changes, most of capital inflow series lose their ability to explain income growth. Bank flows stand as the sole source of foreign financing that displays a positive and robust correlation with growth.

Concessional foreign capital inflows and domestic savings across countries

Using the notions of unit root, cointegration theory and Granger‐Akaike’s synthesis of modelling strategy, this paper examines the nature of stationarities, cointegration properties and Granger causal relationship between domestic savings and aid based on a sample of 27 developing countries. The KPSS unit root test results indicate that variables of interest in a trivariate vector autoregressive system such as aid inflows, domestic savings and income exhibit a dissimilar trend in the majority of countries, with the exceptions of Bolivia and Korea. The cointegration test results based on the Johansen and Juselius testing procedure found evidence of cointegration among the variables, domestic savings, aid and income in Bolivia and Korea. However, the presence and direction of causality between aid inflows and domestic savings are mixed across countries. Whilst the findings are indicative of a causal independence in a majority of the cases, little support is attached to either Griffin’s dependency hypothesis or Papaneck’s reverse causality hypothesis.